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Monthly Archives: May 2015

Someone alerted me to the news that Taiwan has banned or is requiring more stringent certifications for Japanese food exports to their country.

Background
After the Fukushima disaster in Mar 2011 (dubbed 3/11 disaster), all countries worldwide imposed bans on Japanese food imports. These were then progressively and selectively lifted.

In Apr 2013, Singapore lifted most bans except for products from Fukushima and its adjacent prefectures. This was further eased when even food from Fukushima was allowed in effective 31 May 2014.

Meantime, neighbours closer to Japan also reconsidered their bans. A Dec 2013 research report to the HK Legco concluded that ‘when viewed against the number of prefectures and categories
of food covered under the food control measures, the Mainland China and South Korea are the most stringent, the US and the EU to a lesser extent, and Hong Kong, Taiwan and Singapore the least.’

Developments Since
However, whilst Singaporeans were happily snapping up Japanese food imports after April 2013, S Korea did an about-turn in Sep 2013 and expanded Japanese Food Ban to 50 Products. Apparently, our cocksure AVA saw no need to explain (not that I read of) or advise how or where our imports are different from the Koreans.

It appears that the more stringent ban has continued to this day as Reuters reported 21 May that Japan takeing South Korea to WTO over Fukushima-related food import restrictions.

Meanwhile over in Taiwan, 24 Mar 2015, the government of Taiwan announced they found food products from Japanese contaminated areas were illegally imported, deceptively labelled and sold in department stores. Apparently, products labels were falsified, stating their origin to be from areas in Japan other than those banned prefectures such as Chiba, Gunma, Fukushima, Ibaraki or Tochigi. Consequently, from 5/15/2015, all food imports from Japan will be required to carry certificates proving that they are not from the five banned areas (incl Fukushima), while some will also need “radiation inspection certificates,” according to the Taiwan’s Ministry of Health and Welfare.

Unlike Taiwan, S Korea and China continue to insist on each batch of imports carrying certificates of origin (prefecture) and/or proof of radiation testings even for those acceptable to import.

Singapore AVA – Nothing to Report
AVA has explained how it had carried out a comprehensive risk assessment on the safety of the food supply in Japan before lifting the ban. At the same time, there are 4 measures to ensure compliance.

Should we be confident that our Japanese food imports and the safety of those citizens who can afford Japanese produce on occasions are being adequately looked after by AVA? There are 2 reasons why we must call AVA to account.

One, how plausible is it that the Japanese are ‘mislabelling’ their product origin for exports to countries but not to Singapore? Why are Singaporeans favoured to be immune to such unethical – and potentially fatal – misdeeds? Is it because we never ‘kpkb’ about Japanese torture and comfort women during WWII? Or is it because our PM LHL gets special attention from PM Abe?

Two, the episode with the Sengkang columbarium offers cold comfort on the competence or due diligence or both of our government agencies assigned the task to perform their functions. They work on the SOP that once the rules are in place, they expect full compliance – without having to check. They have unequivocal faith in the complete truthfulness of businessmen. Or they are too busy planning their next trip to France to learn how to prepare advanced French cuisine. Meantime, their political masters are too busy with vainglory projects or spending obscene taxpayers’ money to secure that photo-opp with world figures or fixing the opposition and planning how to extent their tenure in order to continue enjoying their multi$mil salaries.

Are we not entitled to know what the Japanese food import situation is? Or is it ‘not in our strategic interest’ to be informed?

Wages are a little higher in Japan but deductions are slightly lower. Rents are on par or slightly lower. Still, why is it better for Ms Saram to operate from Japan and her Japanese staff are more loyal?

Workers are not commodities
The Japanese obviously felt that with healthcare and pension taken care of they were paid fairly and can afford a sufficient standard of living. The job became something worth holding onto and doing well. It helps that Japanese society is egalitarian. Such perceptions of fairness and equality are extremely important because it promotes 1) motivation 2) productivity. This make a huge difference to margins – a typical restaurant in Tokyo has less staff serving customers than in Singapore and yet achieved tremendously high service level. So despite higher wages, unit labour cost would be lower. US supermarket chain Costco paid its workers more than rival Walmart and yet achieved better margins.

Here is why one gets monkeys for peanuts.

In the US, 2 restaurants had gone out of business because of social media backlashes following the refusal of staff blindly sticking to dress code to serve cancer recovery customers who wore hats to hide loss of hair. The staffs concerned were paid minimum wages. Pay workers the minimal one can get away with, the workers will work to as minimal a standard as they can get away with.

Paradoxical it may appear but higher wages do lead to lower costs and of course more robust businesses.

Wages and Porches
These statistics show why business owners like Ms Saram are bellyaching about FT restriction and rising wages; it hurts their fabulous sacrosanct profits.

To get from Singapore’s abysmally low level to Hong Kong’s level, wages have room to rise by at least 20% – it just means less Porches and smaller landed properties.

Low Wages and Inflation
Given an extremely business-friendly government, there are few if any structural impediments such as high taxes and labour restrictions that can explain the persistent low productivity. Likely two reasons: 1) high real estate prices 2) rent seeking behavior by government linked corporations.

High real estate prices including rents and cost resulting from rent seeking behavior in effect act like a highly regressive tax on business, sapping revenues that ought to be re-invested in process improvements leading to less use of labour and higher wages. It takes away disposable income from workers, lowering morale and hurting consumption.

Given dependence on low wage, unproductive processes resulting from the rents and rent-like costs coupled with immovable profit margins, then these businesses are unable to absorb any further cost increases such increases in rents and input costs. There can only be one outcome: inflation. A paradoxical situation of low wages and yet high cost of living.

Overly Large Financial Sector
Let us conclude by looking at low productivity caused by an overly large financial sector. The sector is rent seeking which is necessary to a point but all too often pushed to excesses. Such an outcome increases resources committed to rent seeking by drawing away too much talent from innovative, value creating industries. Think of those expensively educated involved in helping foreign companies and multi-millionaires in tax “massaging”. And those back office operations located in Singapore which are cost, not revenue inducing.

This is backed by research by the Basel based Bank of International Settlements, thanks to a heads-up from regular blogger Cynical Investor. A summary is given below

Once private sector debt exceeds 100% of GDP (Singapore 128%) and total financial sector employment exceeds 3.9% of total employment (Singapore 5%), effects on productivity turns negative.
The finance sector tends to favour those firms that have collateral they can pledge against loans. This usually means more money for builders and property developers, notorious for low productivity, than for those with high R&D spending and with less collateral.

R&D-intensive industries – aircraft, computing and the like – will be disproportionately harmed when the financial sector grows quickly.

The productivity of a financially dependent industry located in a country experiencing a financial boom tends to grow 2.5% a year slower than a financially independent industry not experiencing such a boom.
People who might have become scientists, who in another age dreamt of curing cancer or flying to Mars, today dream of becoming hedge fund managers

In short, the writer recommends reining in real estate prices, the GLCs, the size of the financial sector and the use of low skill, improperly qualified FTs. Most of all, increase wages roughly in line with Professor Lim Chong Yah’s “wage shock therapy”. Finally, welcome innovative, socially responsible entrepreneurs with open arms and wish those like Ms Saram and her fellow panelists Godspeed and good riddance,

Chris K

* Chris is a retired executive director in the financial industry who had mostly worked in London and Tokyo. He writes opinions and commentaries mostly on economic and financial matters.

“The video that Amos Yee created crossed the red line on religion. I think Amos Yee is not doing himself or his family any favours by challenging the conditions of the bail. From my own understanding and also from what I read on the internet, not everyone is on his side. Many would question his motivation. Also, how do you deal with a 16-year-old that is not able to comply with rules in the society. It’s kind of a parents’ nightmare I think. I have a lot of sympathy and empathize with the parents. The parents tried as much as possible to get him to comply with the decision of the courts for conditions of the bail but I think that he’s just not able to follow.”

“I hope that Amos will come to realise the distress that he has caused his family and try to work things out with his parents.” Grace Fu, PAP CEC Member, Minister.

One of the most quoted definitions of corporate culture and, by far, the simplest is the ‘way we do things around here,’ Deal & Kennedy, 1982. The definition captures the essence when applied to a country’s culture. For e.g., in Singapore, we (like to claim we) practise a culture of meritocracy, we advance a person’s position/responsibilities based on an individual’s ability or achievement. And, accordingly, the cabinet of this Tiny Red Dot are paid millions. We also (like to trumpet that we) practise accountability. The responsible person is answerable for his performance whether successes or screw-ups.

That’s a part of Singapore culture. That’s the way we do things around here. Culture practised over time gives rise to rules. Rules help to make more clear-cut how we define our culture.

But culture is neither unalterable nor immutable. It is changeable and constantly changing. Likewise, ‘rules in the society’ even as no society remains static.

Grace Fu has correctly summed up Amos Yee’s series of actions – from his message, the media (youtube, blog) he used, his manner of presentation to his post-arrest behaviour and belligerence towards his bail conditions – as a matter of compliance with ‘rules in the society’ or his failure thus.

She, as a minister, in clarifying her originally reported remarks, also seemingly as a parent emphasizing with Amos’ parents, appears to suggest that Amos being ‘not able to comply with the rules in a society’ can only be a bad thing. Our leaders want Singaporeans, both young and old, to merely comply with whatever the rules are that have been the norm here. Just stick to ‘the way we do the things around here’. Period.

Grace should know better. If rules must only be strictly followed and never challenged, guess where would Grace be now as a Chinese female? Most likely as someone denied an education and, perhaps, even be living with size 3 ‘lotus feet’ from foot binding.

She should count herself lucky to be born in the 20th century. Instead of taking for granted her good fortune, she should be thanking those before her who refused to comply with societal rules of no education for females and foot-binding as a form of beauty.

Having said that, we can agree that NOT all challenges to ‘rules in the society’ is a good thing. We should always try to improve on the good while jettisoning what is no longer relevant to our times or our goals to further strengthen our unity, our progress as one nation.

But what have we been seeing for the last 10, 20 years or so? The rules or, more specifically, our governance culture that our recent forefathers have painstakingly built up to propel us into the the ranks of First World nations are being chipped away.

Take the 2 earlier mentioned; Meritocracy and Accountability. Instead of Meritocracy, PAP leaders have been covertly converting it into a mutated ‘Merito-guanxi’ – a little merit but lots of guanxi. The results? At the highest levels, ministers who are unable to resolve transport problems or decelerate the rate of Singaporean PMETs losing ever more jobs and remaining unemployed or under-employed are not removed but instead reshuffled or given additional ministries to helm. Witness also the many businessmen being served the plump pickings of town council or other government contracts due to the ‘guanxi’ built-up at RCs and other grassroot organizations.

How about Accountability? On the non-negotiable issue of national security, Singapore’s most dangerous terrorist’s (Mas Selamat) escape elicited only a sissy ‘This was a lapse. What to do, it’s happened’…’Let’s move on.’ Nary a minister’s head rolled, only a kah-kia (low-rank). On another matter with broader collective cabinet responsibility, in allowing more Foreigners into SG, the lapses in building insufficient houses, hospitals and transport infrastructure are similarly non-accountable.

What about our retirement adequacy? It’s the PAP that has been in power for more than 50 continuous years. What do they have to say how their own brillance failed to achieve retirement adequacy for an estimated 70-80% of our elders currently? They and only they have been at the helm exercising unfettered use of our CPF monies. Instead of admitting their lack of foresight, they now insist that our parents must abandon their familiar environs to either downgrade or live with strangers in their house to earn rental income to retire on.

Grace, like it or not, the ‘rules in the (SG) society’ are changing.

It is obvious that the current PAP’s merito-guanxi and no-need-for-accountability rules are a regression to the Singapore culture.

But in the case of Amos’ non-compliance and rebellion to the norms, even if his method and methodology are not within most of our comfort zone or appropriate, it remains to be seen if Amos is, in fact, doing what Rudolf Bahro observes, “When the forms of an old culture are dying, the new culture is created by a few people who are not afraid to be insecure.”

Law Kim Hwee

Postscript: Amos actions and words re Vincent Law (no relations with me) must be categorically condemned as uncivil and immatured and run contrary to his original actions to test the limits of being able to freely speak one’s mind in Singapore without succumbing to lies, innuendoes and defamation.

The writer loved The Wall; the album and subsequent part animated film by British prog-rock band Pink Floyd, one of the most intriguing and imaginative works of art. It spoke to him in his youth when he felt repelled by the constant cycle of study and exams and later alienated by the slavish conformity demanded by the PAP. And he keenly felt a sense of dejavu following the Amos Affair as life, at least in Singapore, seems to be imitating art. Here is a brief synopsis.

“Pink’s life revolves around an abyss of loss and isolation. With an overprotective mother who lavishes equal measures of love and anxieties onto her son, Pink begins to build a mental wall between himself and the world so that he can live in a constant, alienated equilibrium free from life’s emotional troubles and uncertainties. Every incident that causes Pink pain is yet another brick in his ever-growing wall: a fatherless childhood, a domineering mother, an out-of-touch education system bent on producing compliant cogs in the societal wheel, a government that treats its citizens like chess pieces, the hypocrisy of society, the mindless conformism. Shackled to his bricks, Pink watches helplessly (or perhaps fantasizes) as his fragmented psyche coalesces into a persona that became famous but antagonise the society which had defiled his own life from birth.”

Quite like Pink, Amos’s own psyche seems to have coalesced into the persona that antagonises Singapore society by ranting against hypocrisy and that very mindless conformity. This persona will have difficulties with the “values” of a society shaped by a government narrative that produces those compliant cogs of the societal wheel and those chess pieces or in Singspeak economic digits, depicted in the Wall.

The famous animated scene from the film with resonance to Singapore since the passing of Lee Kuan Yew; rows of hammers, lower half of the handle black and the upper half red, the colours of Fascism, marching in goose-step crushing enemies – a display of mindless, faceless power. 32 police complaints and countless vitriolic and violent incitements perpetrated by adults on a teenager in leg irons and handcuffs over a video rant. Questions of the legacy of Mr. Lee attacked not by reasoned arguments but by threats. Are the nation’s own black and red hammers goose-stepping out of the closets to crush political dissent?

Beyond the pervading sense of doom and the nihilistic rage, paced by Pink Floyd’s usual slow, deliberate music, the Wall has a strong existential current that freedom cannot be separated from responsibilities but also that real freedom cannot truly be found by conformity and rigidities which alienates. Are all of those conformities and rigidities of past certainties the value to take Singapore into the future? Here is the end of that great song “Comfortably Numb” from the Wall.

“When I was a child
I caught a fleeting glimpse
Out of the corner of my eye.
I turned to look but it was gone
I cannot put my finger on it now
The child is grown,
The dream is gone.
I have become comfortably numb.”

One may understandably be anxious about the responsibilities of true freedom by holding on to past PAP narratives unchanged and unalterable. But for the sake of the young and the nation’s future, should one’s own anxieties about freedom be passed onto the young so that they become just as comfortably numb?

In the real world, as Apple co-founder Steve Wozniak said a company like Apple could not emerge in societies like Singapore

“Look at structured societies like Singapore where bad behavior is not tolerated [and] you are extremely punished. Where are the creative people? Where are the great artists? Where are the great musicians? Where are the great writers?”
The nation cannot meet the challenge of the future by holding onto past delusions and anxieties.

That is what comes to mind going by DPM and Finance Minister Tharman Shanmugaratnam’s speech at the Labour Movement’s May Day dinner.

“For the remainder of the decade, we expect to see GDP growth ………..about 3 per cent on average, which reflects a new normal in our economy……… However, achieving even 3 per cent growth on average will be an increasing challenge, as our labour force slows in the years to come. We therefore have to focus our efforts on raising productivity and finding every way to do business more innovatively. It is the only way we can sustain increases in Singaporeans’ incomes. It will, by the end of the decade, be the main way that we can grow in the face of a tight labour market, and without ever-increasing dependence on foreign workers.”

The writer has consistently argued that the long term growth potential of the Singapore economy cannot be much higher than an average of 3%, given the natural constraints of a fairly advanced economy with tight capacity. Once again, Mr. Tharman inadvertently proves the writer’s assertions and in doing so, practically admitted that the old capital and labour intensive growth model is exhausted.

Hangover
PAP’s appear not to know any approach to macro-economic policy than the same capital and labour intensive growth model from the 1960s and 1970s. Growth Maximisation is simply a rehash to overcome those natural constraints by massed use of foreigners and suppression of rates of return on long term savings. The result is very low Total Factor Productivity, a long term problem already evident by Nobel Laureate Paul Krugman’s research in 1994, reiterated by the IMF country report of 2012.

The writer had also consistently argued that any attempt to grow beyond the long term growth potential involves significant socio-economic trade-offs. Strong economic growth pushed by Growth Maximisation beyond the long term potential did not produce an appreciable increase in productivity but did produce immense socio-economic stresses such as elevated cost of living, inadequate healthcare and retirement provisions, income inequality and that mother of all problems, low Total Fertility Rate.
Maximising the “New Normal”
Lim Swee Sway may think Singapore “could regress and become just a normal country with an ordinary economy and ordinary workforce” but it betrays his intellectually deficient “growth at all costs” mentality. For, the “new normal” is very good if it meant quality, productive and equitable economic growth. With its various initiatives, the government suggest the issue of productivity is solely a problem with labour. But macro-economic policies needs major adjustments to provide the fundamental improvements.
Capital and Labour: Since capital and labour use is intensive, it means they are cheap and plentiful. Mr. Tharman helpfully suggests that by 2020, foreign labour force will see negligible increase but the quality of the foreign labour force also needs to be elevated. CPF rates and government indebtedness (so long as proceeds are invested) needs to be raised. Increased wages and capital costs drive out businesses that are over-reliant on intensive use of cheap capital and labour and release resources for more productive use. In short, productivity will increase if wages increased, contrary to what Mr. Lim says.

Rents and property prices: These are massive drags on productivity and desperately needs to be reduced because they are sucking up too much income. Real estate construction and development are notorious for low productivity. High rents sucks up income that can be more productively employed. (This is identified as the biggest drag on UK productivity in comparison to Germany and Scandinavia).

Adjust Corporate Taxes: Unproductive businesses are attracted by low taxes, in combination with cheap labour, without both they are un-viable. These businesses should be driven out by adjustment in taxes so that the use of cheap, unproductive labour is reduced and qualified workers re-allocated to productive work.

Strong Social Safety Net: The most dynamic and innovative industries are also highly volatile and uncertain. The high cost of failure needs to be mitigated by a strong social safety net. Moreover, these industries will also see high turnovers of even the most skilled workers – a strong social safety net provides time and resources for retrenched workers to find better job matches and reduce mis-allocation of labour. Strong social safety net promotes dynamism, innovation and productivity.

Society Changes
No society can hope to be at the fore front of home grown innovation and creativity if that society is subject to highly repressive socio-political measures like Singapore. The physical and psychological limits inferred by such measures circumscribed the necessary pushing of boundaries by creative minds. Command and control modes of government and demands for obedience are incompatible with the equally necessary and messy clash of ideas and opinions. Singaporeans needs to be free to question and to reason but not to follow unthinkingly. If this means it becomes edgy like the West, then that edginess is what creativity and innovation is all about.

Conclusion
Most of the above are fundamentally unpalatable to the PAP. They went mostly against their cherished policies and against their hardcore base. However to “future-proof” the nation, steady high quality economic growth predicated on innovation, creativity and productive is a necessity, not break-neck growth at all cost. Not only policies but society needs to be adjusted and shaped for a good quality “new normal”. For that, those expensive ministers and talents should stop repeatedly following the path of least resistance.

Chris K

* Chris is a retired executive director in the financial industry who had worked mostly in London and Tokyo. He writes opinions and commentaries on economic and financial matters.